Smart Moves by Ellen James Martin

Refinance For Cash or Better Rates

For several years, economists have cautioned that mortgage rates could rise as the U.S. economy continues its economic recovery. But to date, rates have stayed near historic lows -- in part due to volatility in China and uncertainty about the U.S. oil industry.

That's tempting many homeowners to refinance while rates are still favorable. Most refinancers seek to lower their monthly payments, while others want to do a "cash-out refi" to consolidate bills, buy a new car or tackle a major home improvement project.

Would refinancing be a wise move for you? That depends, says Keith Gumbinger, a vice president at HSH Associates, which tracks mortgage rates throughout the country.

"Before you do a refi, you've got to do the math. How much equity do you have in the house? What would it cost to do the new loan? And how long would your new term stretch out?" Gumbinger says.

Regrettably, there are still a fair number of would-be refinancers who can't take advantage of low mortgage rates because they have little or no equity in their property. But for potential refinancers with a positive stake, here are a few pointers:

-- Take your time in shopping for the right lender.

Since the financial downturn, the federal government has become increasingly involved in the mortgage market. The result is that government-backed mortgages now represent the bulk of all home loans made in the United States. Meanwhile, there's been a decline in the number of mortgage brokers -- intermediaries between consumers and bankers -- operating in the field.

"A lot of mortgage brokers are gone. But more of the brokers and lenders who are left are real pros in their field," says Guy Cecala, the CEO of Inside Mortgage Finance Publications, which publishes industry newsletters and reports.

More stringent lending standards mean homeowners face a greater risk that their mortgage application will be denied. To reduce your risk of rejection, Cecala urges you to choose your lender carefully.

"You always want to shop around, not only for the best possible rates and fees but also for a lender who offers good service and processing speed," he says.

-- Use referrals to help you select the best lender.

Unlike those seeking a mortgage for a home purchase, those seeking to refinance don't have the benefit of a list of lenders handed to them by a real estate agent. But there's no reason that refinancers can't also turn to local real estate agents.

As Cecala says, agents are in a good position to know which lenders will offer the smoothest and swiftest loan processing. After all, they work with lenders year after year and need to identify those most likely to get their deals to the finish line on time.

"Contact at least three different types of lenders before making your selection. Try to include on your list one mortgage broker, one major bank and one smaller bank or credit union," Cecala says.

-- Don't give out your Social Security number prematurely.

Of course, no quality lender will guarantee that your mortgage rate has been locked in without first pulling your credit scores. But that doesn't mean you should give out your Social Security number, a credit-score requirement, while you're still comparison shopping.

You shouldn't have to release your private information just for routine rate shopping. And getting your credit checked too often can hurt your scores.

"You need to be guarded about your private information," Gumbinger says.

-- Try to steer clear of "junk fees."

There are a number of costs and fees involved in refinancing, and only some of them are imposed by lenders. These lender-based fees include the cost for a home appraisal and a copy of your credit report. Also, other charges, often called "junk fees," are imposed by the lender.

To better protect consumers, the U.S. Department of Housing and Urban Development has set tighter rules to let borrowers compare lenders on the basis of their charges. As a result, HUD now requires lenders to give borrowers an early and accurate listing of their closing costs.

But Gumbinger says it's up to consumers to carefully compare a lender's charges before deciding whether to proceed. To do this, it's important to study a copy of the lender's estimate of closing costs. This standard form, which was recently updated by federal regulators, should list all the fees you'd pay at closing, with a very small margin for changes. The lender must give you this estimate shortly after you apply for a mortgage.

By carefully reviewing your estimated fees, you'll have a chance to ask for lower charges or to change lenders to get a better deal.

Though mortgage lenders face ever-stricter disclosure requirements in recent years, their fees have also climbed because of their heavier workloads, according to Gumbinger.

"Remember that what constitutes a junk fee -- versus a legitimate business charge -- is always in the eye of the beholder," he says.

(To contact Ellen James Martin, email her at